Initial Public Offerings (IPOs) are typical for stocks, but what about crypto? Cryptocurrencies can come to market through an Initial Dex Offering (IDO), an Initial Exchange Offering (IEO), a Security Token Offering (STO), etc. In 2021, crypto startups raised a startling $25 billion in a record move.
That included those in Web 3.0 products, NFTs, marketplaces, and other crypto-exclusive startups. The success has been due to clever ideas in crypto fundraising. Nevertheless, the methods continue to evolve and become even more efficient.
The evolution of crypto fundraising has brought many methods our way. However, two stand out among the pack: IDO and IEO. We shall go through each and compare them to reveal the best approach.
What is IEO?
Trusted and popular cryptocurrencies carry a feeling of reliability. Users tend to trust things endorsed by these platforms. Hence, you can see why new token creators will take advantage of this unique position.
An initial Exchange Offering (IEO) involves launching a new token on a popular crypto exchange. It is one way for creators to start their journey on a solid foundation of trust. Despite it not being advisable, many users may believe that the exchange has vetted the new token.
Listing IEOs on crypto exchanges gives the token access to a highly liquid market. Hence, it leverages this audience to generate sales and boost its market standing.
Some IEOs allow users to buy new tokens directly with their exchange funds. As a result, they can search for acceptable cryptocurrencies. Binance Launchpad is a vivid example of this approach.
Because of the direct market IEOs provide, users can quickly access new projects. It is one of the most common crypto fundraising methods. However, there are concerns about its reliability.
Binance Launchpad claims to vet new coins for its exchange. While this statement offers a gleam of hope, concerns about reliability still exist.
Here are some benefits of IEO and why it largely replaced Initial Coin Offerings (ICO):
- Project Viability
Centralized crypto exchanges have a reputation to maintain. As a result, it falls on them to do their due diligence before launching a new token. Projects will lose out if they are not up to the standard.
CEX platforms are designed to be user-friendly. They take away the hassle of understanding deep blockchain theory before trading. As a result, users have more simplicity than with Initial Coin Offerings.
IEO Crypto: How Does It Work?
Project owners offer their tokens on popular exchanges to raise funds for their startups. While that might sound simple, it involves some groundwork. Moreover, the exchange must verify the project before listing the token.
The process of IEO crypto fundraising is relatively simple. It involves the following parties:
- The project team
- The crypto exchange
- The users
However, the project must gain traction before it heads for an IEO.
You cannot pick up an idea in the offering stage. The token must be live with a viable project. Remember that the aim is to raise money, and to do that, users must find value in the projects.
Once live, users head to the exchange and purchase the tokens. Some platforms make it easy to buy with supported coins. As a result, buyers can avoid grabbing cryptos from elsewhere.
The essential stages for a crypto IEO include the following:
- Whitepaper drafting
- Submission of the project to the exchange
- Vetting by the exchange
- Approval and contract agreement
IEOs offer fewer financial risks than Initial Coin Offerings (ICOs). That is because of the involvement of a third party.
IEO tokens contain smart contracts. However, the centralized platform takes care of this aspect, leaving the project team to focus on other things. It is one of the benefits of taking token launches to CEXs instead of ICOs.
Although the number of cryptocurrencies fell to 9,310 in November 2022, new projects are incubating. IEO remains a viable approach to crypto fundraising. Launchpads will maintain their popularity.
There is a new player on the block: IDO. We will talk more about it in a moment. Meanwhile, let us look at how to launch a crypto IEO.
How to Launch a Crypto IEO
Launching a crypto IEO is easy once the token is up and running. The following are the stages of launching a crypto Initial Exchange Offering (IEO):
- Idea / Token Creation:
The idea forms the foundation of the token. A faulty one will get thrown out by many industry-leading exchanges. Hence, the project team will craft their blockchain idea and put it in a whitepaper.
The whitepaper contains everything, including the road map.
- Picking an Exchange and Submitting the Project
Once the project is up and running, the next step is to launch it. Of course, this stage will come after vigorous tests have been performed. The token must be proven viable.
The crypto industry has several exchanges that host IEOs, including Binance Launchpad, ProBit, Huobi Prime, Bitmart launchpad, KuCoin Spotlight, etc.
- Approval and Advertisement
Placing a token in an exchange does not give it popularity. Hence, the project team has to publicize it as much as possible. Remember, the aim is to get as many people to buy in as possible.
- Launch the IEO
Once all is set and done, the projects will launch the IEO on the selected exchange. Users on that platform can buy the listed tokens directly.
The crypto exchange’s reputation gives new tokens leverage, as mentioned earlier. Users start at a certain level of trust and don’t have to verify the projects from scratch.
Announcements from crypto exchanges also help in the marketing process. IEOs are still in their early stages, but they are gaining popularity.
Although the crypto exchange is crucial to the IEO’s success, the token and the idea behind the token are equally important. Then you have popularity, which determines how many buyers the token will get.
What is IDO?
Crypto exchanges, as we know them, exist in two forms: centralized and decentralized. As a result, initial DEX offerings (IDOs) take place on decentralized crypto exchanges. As you will learn, this crypto fundraiser shares many similarities with IEO.
IDO involves launching tokens on a decentralized exchange. It leverages liquidity pools without intermediaries and instant trading. Ideally, this method creates a win-win for all parties involved.
This crypto fundraising approach appeared in 2019 when projects were drawn to decentralized exchanges. These platforms became the better choice as they eliminated the bottlenecks of centralized exchanges.
The Raven Protocol was the first project to have an IDO launch. It did not take long for IDO launchpads to spring into view and handle even more project launches. Hence, IDO quickly became the approach of choice for many tokens.
Despite its growing popularity, there was distrust in the crypto space. The purchase rate of new tokens led investors to believe that bots and insider traders had betrayed them. Of course, like any significant business, IDO had to adapt.
The introduction of Lanchpads solved most of these problems. It made the process fair and restored investors’ faith in it.
The promise of quick transactions, instant liquidity, and fairness make IDO the ideal crypto fundraising. Many projects turn to it, and many more will join in the future. However, the steep learning curve for DeFi platforms makes them less desirable to new crypto investors.
IDO Crypto: How Does it Work?
Liquidity is crucial to the survival of DEXs. Hence, they are ready to reward anyone who brings it in large quantities. IDOs are one of the major providers.
The key players in this approach include the following:
- The project team
- The DEX platform
- The vocal community members
Unlike centralized exchanges, where a central authority vets and approves tokens, DEXs use community members. They vet new projects and approve them for launch. Also, the project will allocate a share of the liquidity for trading assistance.
You may have concerns about the gas fees for the smart contracts. Well, they are generally lower because there is enough liquidity for trading. That also means that IDOs can mint tokens in the heat of sales.
While IDO is appealing, it has a few limitations. There might be a need for a more rigorous vetting process. As a result, poor crypto projects will slip through, and in worst-case scenarios, you can have scams.
Notwithstanding, it does offer some attractive advantages. There is no wait time between launch and listing. Investors can buy the token immediately. Let’s see the benefits of going for an IDO.
- Boosted Liquidity
IDOs do not use a central authority to determine the price of their tokens. Instead, it uses a mathematical formula that calculates the price based on supply and demand. The former is based on liquidity pools.
This approach gives the token automatic pricing. Hence, the price could vary as investors buy and sell them. That changes the ratio of tokens in the liquidity pools.
- Transparency and Lower Cost
Anyone can participate in crypto fundraising. There is no waiting period where private investors will buy in large quantities and sell later for insane profits. Also, the gas fees are lower.
How to Launch an IDO
So, what steps are involved in IDO crypto fundraising? As mentioned, DEXs require a steeper learning curve than CEXs.
The IDO process is relatively easy if you know your way around DeFIs. Once you get your project up and running, the rest of the steps are straightforward.
Bearing that in mind, here is how to launch an IDO:
Because IDO is decentralized, you can still get away with a below-par project. The independent community verifiers can still deny your application to launch on the DEX. As a result, you must work on your project.
The excitement surrounding your project determines the sales. Robust projects and tokens tend to get more attention, especially when they solve existing problems.
Now, it is time to let people know about your project. There is no special announcement for DEX launchpads, unlike IEOs. Hence, you will handle most of the publicity.
Popular options to boost your marketing are getting a website and a whitepaper. The website gives people access to your project, while the whitepaper explains it in more detail. Perfecting the two is crucial.
- Apply to the DEX Platform
Although there is no central authority, DEXs have community members that vet projects. Hence, giving them the best is a surefire way to secure a spot on the platform.
- Launch the Token
This is the final step in your crypto fundraising. Like other approaches, you might not completely control the price. The automatic pricing mechanism kicks in, letting the sales-to-liquidity ratio determine the price.
DEX Launchpads require more technical knowledge than CEXs. So, get a blockchain-savvy team if you need more expertise.
IEO Vs. IDO: Side-By-Side Comparison Table
IEOs and IDOs are both promising approaches to crypto fundraising. Their evolution over the years has made the process more reliable and effortless.
The table below compares the two approaches:
|Fundraising platform||Centralized crypto exchanges||Decentralized crypto exchanges|
|Vetting authority||The owners of the CEX vet the token thoroughly before approval||Independent members of the launchpad vet the token before approval|
|Smart contract management||The centralized crypto exchange manages the smart contract.||Both the project team and the DEX launchpad manage the smart contract|
|Marketing||The centralized platform is mainly responsible for announcing and marketing the token||The project team and the DEX launchpad are responsible for the marketing|
|Token availability after launch||Users cannot buy the tokens immediately after launch||The tokens are immediately available for purchase after launch|
|Listing platform after launch||The centralized crypto exchange will list the token after launch.||The decentralized crypto exchange will list the token after launch.|
Cryptocurrency startups raised $25 billion in 2021 thanks to Initial Exchange Offerings (IEOs), Initial DEX Offerings (IDOs), and other approaches. IDO and IEO are among the most popular crypto fundraising platforms for startups. Projects that want more decentralization will opt for an IDO, while those that want simplicity will go with an IEO.
Building new crypto projects and getting them to launch can be tasking. Nevertheless, visit Aegas, share your idea, and get started.